Rates uncertainty hits bonds demand

Investor appetite for short-term securities remained high last week as Treasury bills saw a big oversubscription, contrasting with the muted demand for the longer term bonds.

Central Bank of Kenya said it received bids worth Sh49.76 billion in the Treasury bills auction last week, with the 364-day paper remaining the most popular despite a marginal decline in yield during the week.

For all three tenors, the government accepted a total of Sh34.73 billion, which when matched against rollovers of Sh13.60 billion meant that new borrowing stood at Sh21.13 billion. The 364-day offer received bids worth Sh39.28 billion, even as its interest rates fell marginally to 9.79 percent from 9.85 percent in the previous week.

In the previous week, investors had bid Sh47 billion, indicating the high appetite for T-bills in a liquid market.

However, the same demand has not been seen on the longer Treasury bond market.

The government only managed to raise Sh27.9 billion in the February bond sale, missing its Sh50 billion target from the two tranches of 15 and 25 years.

The underperformance could be attributed to the lengthy tenor of the bonds at a time uncertainty over interest rate direction makes it prudent to limit exposure to short term papers, as well as the CBK’s continued rejection of expensive bids which were seen at the auction.

Investors bid Sh18.44 billion on the 15-year paper, out of which CBK accepted only Sh5.2 billion.

The 25-year paper performed better with bids worth Sh24.06 billion and acceptances of Sh22.68 billion. On the shorter bond, investors on average demanded 13.04 percent in interest, with the average rate in accepted bids at a lower 12.76 percent.

The weighted average of bids on the 25-year paper at 13.64 percent was much closer to the acceptances rate 13.59 percent, hence the higher amount in accepted bids.